Ride-hailing app company Uber’s FDI peaked in 2017 and this trend seems likely to continue following the company’s recent deal with Japanese technology group SoftBank.
“Uber will use the Softbank money to expand outside the US in markets that have strong demand and weak regulation, and to advance their self-driving car project,” said Erik Gordon, an entrepreneurship expert at the University of Michigan's Ross School of Business.
In late December 2017, Uber announced that a consortium led by SoftBank would buy 17% of the company in a deal worth $10bn. Uber’s spokesperson said it would use the investment “to support our technology investments, fuel our growth, and strengthen our corporate governance”.
Uber’s greenfield FDI reached new heights in 2017 at $190.6m, a 57% increase from its previous record in 2015 and almost treble the amount invested in 2016, according to fDi Markets, a greenfield investment monitor from the Financial Times.
Evan Rawley, an associate professor at the University of Minnesota’s Carlson School of Management, said the cash SoftBank will “be used to fund overseas investments”. However, he warned: “Uber needs to find a path toward profitability if it [wants] to IPO [in 2019], and IPO pressure might induce Uber to sell some of its country-level businesses. Therefore...Uber [may] reduce its scope, but increase investment in the countries where it remains.” In 2018, Uber will also seek to counter growing competition from US rival Lyft.
Softbank’s investment follows a rocky year for Uber due to increased US. competition, a major hack, accusations of trade-secret theft, federal investigations into alleged bribery and regulation evasion, London threatening to revoke Uber’s licence, claims of sexual harassment by employees and a public outcry at its workplace culture. In 2017 Uber lost $1.06bn in the second quarter and $1.46bn in the third.
The Softbank deal values Uber at $48bn, almost 30% lower than the company’s most recent valuation of $68bn. SoftBank will keep a 15% stake in Uber while the rest of the consortium, which includes San Francisco’s Dragoneer Investment Group, will own approximately 3%. The deal is expected to close in January 2018.
SoftBank founder Masayoshi Son has sizeable stakes in ride-hailing companies around the world, such as China’s Didi, Brazil-based 99, India’s Ola and Singapore’s Grab, all of which have competed with Uber. Under Softbank's influence, Uber “will seek to do deals with existing operators to try to minimise competition” and increase co-operation, said Bernstein analyst Chris Lane, meaning “the nature of [Uber’s] investments might shift”.
The deal with SoftBank will initiate numerous changes in the way Uber’s board oversees the company. Rajeev Misra, chief executive of SoftBank's Vision Fund, the largest ever technology investment fund worth $98bn, will join the Uber board, The Wall Street Journal reported.
“The stockholders did the smart thing. The price is less important than locking in the governance changes and securing the support of the world’s most powerful technology investor,” said Erik Gordon of the University of Michigan.